With more than 5 million households currently behind on their mortgages, the Obama adminstration is rolling out a new program to encourage lenders to accept a short sale.   A short sale is one in which a property is sold for less than the outstanding mortgage owed to the lender.   The administration hopes the program will prevent more foreclosures, which further depress property values and harm good neighborhoods.

The  program, which takes effect April 5, 2010,  pays lenders and borrowers to complete a short sale.   Key points of the program are as follows.

• 1.  The program compels lenders to accept a short sale offer and forgive the difference they are owed between the market value and the outstanding mortgage balance. 
• 2.  The lender will receive $1000 for every short sale they participate in.
• 3.  The program encourages millions of borrowers to get serious about getting rid of their homes.  It  pays homeowners $1500 in walking away cash for finding buyer for their property and closing the sale.
• 4.  The lender will utilize real estate agents to determine the present market value for a home.  That value will set the minimum acceptable price.   The estimated value will not be shared with the homeowner.  If an offer is submitted that is equal to or higher than the estimated value, the lender MUST take it.

Pro’s and Con’s

• 1.  For the investment pools which own most of the home loans, there is the hope of getting more money from a short sale than a foreclosure proceeding.
• 2.  For the lender, $1000 will help offset the labor intensive short sale process.
• 3.  For the borrower, their credit will suffer less damage.  They have the lenders assurance that they won’t be sued down the line for their unpaid balance.  And, they get $15oo to assist with their relocation.
• 4.  For the community, short sales mean fewer empty houses sitting around waiting for the bank sale.  It is estimated as many as half of all vacant properties are ransacked, neglected, vandalized and depress the value of neighboring homes.
• The downside is that short sales are “tailor made” for fraud.  House values are inherently subjective, which providing a wide latitude of potential conflicts.
• Another problem is that bankers hate the very idea of accepting an offer short of what they are owed.  By nature, they don’t want to sell anything at a discount.  If they loan $200,000 …they expect to be repaid $200,000, not $150,000.

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